The recent jump that the dollar recorded on the black market, within a few days, was not surprising, as long as serious treatments for all the joints of the economic crisis are absent, and are replaced by temporary measures that do not meet the requirements, and do not go beyond being a purchase of time indefinitely.
Until the moment of preparing this article, on Thursday afternoon, the dollar had crossed the threshold of 33,000 LBP. Noting that the latest rise started last Friday, as the dollar reached 31.800 LBP. While the exchange rate in the previous Thursday’s trading was at an average of 30,800 LBP. Last Sunday, it reached 31.750 LBP. It opens this week at 32,000 LBP. It continues to rise, reaching 33.150 LBP. Thursday afternoon.
In an interview with the Lebanese Forces website, Patrick Mardini, head of the Lebanese Institute for Market Studies, points out that “the rise we are witnessing today in the exchange rate of the dollar against the lira is a path that began more than two years ago and is not new, and it continues and has not stopped in the first place. The reason for the rise is the deficit in the public budget and the public sector.”
He explains, “The government’s high expenditures are higher than its tax revenues, from which it does not collect enough to cover the expenses. Therefore, what the government is doing is financing the difference between income and expenditure, that is, the deficit, through inflation and the collapse of the exchange rate accompanied by the rise in prices in general in Lebanon.
Mardini asserts, “As long as the Central Bank continues to finance the general budget deficit by increasing the size of the monetary mass, as well as by financing (softening) depositors’ withdrawals in order to cover bank losses, the dollar’s path is upward and will continue in this way. Therefore, there is no ceiling for the rise in the exchange rate of the dollar, and no bottom for the collapse of the lira, as long as we do not carry out the necessary reforms.”
He stresses, “The policy of financing the deficit through the collapse of the exchange rate is deliberate. The reason is that in the past years, the government has accumulated random employment on the basis of sectarianism, political favoritism, and mediators, and it is still paying salaries, wages, and pensions despite the low productivity. Also, in the past decades, the government has accumulated a large public debt and must pay the service of this debt. It is true that we have defaulted on paying the public debt made up of dollars or what is known as the Eurobond, but we are still paying the public debt service in pounds.”
He added, “Therefore, all these expenditures incurred by the public sector need financing, and there are not enough tax revenues to finance them, and they are currently financed by the Central Bank through inflation and the collapse of the exchange rate,” noting that “the urgently required reform is for the government to stop its deficit and reduce its expenditures.” public sector and restructuring the public sector. And before that, and most importantly, the need for the Central Bank to stop increasing the size of the monetary mass in pounds, if it is not covered by foreign currency reserves.”
He explains, “What the central bank is trying to do is pump liras into the market in order to finance the state, the public sector and the deficit, and then return to buy them again by losing depositors’ dollars,” explaining that “this directed floating system that, on the one hand, pumping the lira into the market leads To the collapse of the exchange rate and the rise of the dollar that we are witnessing daily, and on the other hand, the repurchase of the lira that we injected to secure the stability of the exchange rate ultimately leads to the loss of the remaining depositors’ money.”
Mardini points out that “instead of the government working to reduce its expenditures and start correcting the situation, it is working in a second way, as it is reported about an increase in revenues through an increase in taxes and fees, specifically tariffs and customs fees. In the government’s opinion, by increasing customs tariffs, revenues can increase in a way that leads to covering the budget deficit to the point of its disappearance, and then the need to finance the deficit, which no longer exists, is eliminated by increasing the size of the monetary mass.”
He asserts, “This is a wrong policy and will be counterproductive.” He explains, “What is said about an increase in the customs dollar from 1,500 LBP. to 20,000 L.L, which means a 13-fold increase,” stressing that “increasing customs tariffs by this percentage will not lead to an increase in customs revenues by the same proportion in parallel,” expressing his belief that “the expected increase in customs revenues is greatly exaggerated, because what will happen is Quite simply, it is an increase in smuggling and customs evasion.”
He stresses, “Everyone knows that there is widespread and rampant customs evasion through various land, sea and air ports. Therefore, if there is a section of importers and traders who still declares their goods properly and pays their customs duties, it will no longer be useful for them to continue doing so if the customs dollar is raised to 20,000 LBP, but rather it becomes better for them to try to (balance them) as they are Better with someone at the customs, than paying the new customs tariff.”
Mardini believes that “instead of increasing government revenues, this step will increase customs evasion. The same will happen, even if we assume that we will be able to control customs evasion, as many will resort to bringing the goods into ports in neighboring countries without paying customs duties, and then smuggled into Lebanon where they are sold on the black market.”
Thus, Mardini points out, “This policy supports the incomes of smugglers and those who facilitate tax evasion and smuggling, not government revenues. Therefore, it will not lead to the desired results, and will not allow the government to increase revenues sufficiently to cover the public budget deficit,” considering that “the government sells the bear’s coat before hunting it. In the sense that, in anticipation of an increase in customs revenues, there has been talk of an increase in salaries and wages. That is, we started to increase expenses while the incomes are still hypothetical, but most of them are illusory.”
Mardini is not surprised, “We discover in the end, in the event of raising the customs dollar, that the budget deficit rose instead of decreasing, that is, that financing the budget by increasing the size of the money supply increased, and thus inflation increased.”
In his opinion, “there is misplaced optimism about the ability of tax increases to provide the necessary revenues, and not only because of customs evasion and smuggling, because when fees and taxes increase, the country becomes uncompetitive and unattractive. For example, if the customs tariff on the imports of tourist establishments will rise by this size, this means that they will have to raise their bills on tourists and customers to continue. Thus, how will Lebanon be able to compete with several tourist countries in the region, such as Turkey, Egypt, Jordan, Cyprus and Greece?
Mardini asserts, “Lebanon will no longer be able to compete, neither in tourism, nor in industry, nor in agriculture, nor in services in this case. Practically speaking, we will contribute to an increase in the crisis and economic stagnation, and with the additional recession, the state’s revenues will decrease more and not increase. Therefore, the policy of increasing taxes and fees is very wrong, especially in a country that is going through an economic collapse. No one in the world increases taxes and fees at the height of the collapse, and it is more useful to reduce public expenditures, and most importantly, stop financing the deficit by increasing the money supply. Unfortunately, the steps being taken are in the wrong direction.”
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